Costs of economic growth

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The costs of economic growth

While growth improves a country’s
chances of development, it also creates a number of economic and
social costs.

Negative externalities

As growth increases, production and
consumption increase and there are likely to be considerable
external costs
as a result, such as deforestation, and the knock-on effects such as
increased flooding; desertification of regions suffering
over-production; pollution of rivers; depletion of non-renewable
resources and long term climate change.

Exhaustion of environmental capital

The environment is a scarce resource and a
factor of production, which resembles capital. If the environment is
over-exploited and miss-used, future development prospects will be
restricted. A lack of
property
rights over often vast areas of land means that there is no
incentive to conserve such resources. This impacts on the poor, who suffer most from polluted drinking water and
loss of agricultural land.

Urban squalor

Urbanisation tends to go hand in hand with
economic growth and an exodus from the land to the cities, as can be
witnessed in much of India, China, and Latin America. The resulting
squalor is one of the most widely recognised costs of rapid economic
growth. The urban slums that exist in many parts of the developing
world today closely resemble those that existed in large cities in
the UK, and across Europe, at the end of the 18th Century
because of rapid industrialisation.